Weibo (NASDAQ:WB) is a leading social media platform in China, founded in 2010. Its monetization started since 2012, and over years, WB became a sweet spot of social media. In the past 12 months, WB share price went up 228%.
WB is currently trading at 35x 2018E consensus EPS of $2.19. Consensus shows the average price target as $75.43, 3% lower than current price. The short percent of float reached 42%. All evidences indicate WB is overvalued.
Nevertheless, in this article, I would like to share different thoughts about WB. As WB’s monetization advances, I believe WB, as a dominant open social platform, will continue to be a winner in China’s Internet Celebrity economy.
Weibo is a leading social media platform for people to create, distribute and discover Chinese-language content. As of Mar. 2017, WB has 340 million MAUs and 154 million DAUs. It exceeded Twitter (NYSE:TWTR) to become the world-largest independent social media company per MAU.
Source: Company filings
WB users consist of a large number of influencers, such as celebrities, KOLs (Key Opinion Leaders) and other public figures, and platform partners, such as media outlets and organizations with media rights.
According to China Internet Development Statistics Report, as of June 2016, China Internet users reached 710 million, which means WB has penetrated 48% of China Internet users.
Also it is worth mentioning that WB user demographics are very distinct. As shown in the following charts, 68.8% of WB users are between 18-30 years old and 57% of WB users come from 3rd and 4th tier cities.
Demographics of WB users, Source: China Internet Development Statistics Report
WB User Geographic Data, Source: China Internet Development Statistics Report
Investment Thesis#1: WB has built its irreplaceability in China’s internet celebrity economy
In China there are two widely recognized influential social platforms, Weibo and WeChat, which are strikingly different from one another. WeChat is a selective and closed platform with information and messages only available to friends, real friends in ‘real life’. With that, WeChat powers strong connections in social life, and trust remains a crucial component. In contrast, Weibo is an open platform with information and messages available to the public.
Weibo users are not necessarily friends; instead they share similar interests on topics such as food, travel or celebrities. The “weak” and 1-to-n connections enable very quick information dissemination, and thereby provide WB users an easier access to entertainment stars regardless of your physical location. The difference can be as high as 3 million readerships on WB vs. 70,000 readerships on WeChat.
WB is at the center of China’s celebrity. According to Weibo Celebrity White Paper released by Sina Entertainment, star fans accounted for 51.5% WB MAU. In total there are 28,000 entertainment stars, and 2,000 “V” accounts. WB is the social platform that has been used by entertainment stars the longest ever. As of July 31st, 2016, 70% of them had used WB for over 6 years. On an annual basis, there are 85,000 celebrity topics, 690 billion views and 1.4 billion daily discussions generated from the WB platform. This amount is equal to 86 times of “2016 Olympics,” 129 times of “Happy New Year” and 206 times of “Double 11.”
Building upon the celebrity network, WB also offers opportunities for ordinary people to be an online celebrity, otherwise known as Weibo “V” accounts. WB “V” system is designed to have an orange V and golden V for individual and self-media users. Users that attract over 10 million monthly views are qualified for a golden V, which is a dynamic mechanism that the golden V will downgrade to an orange V if fewer than 10 million views are generated within a month.
In 2016, there are 340,000 orange V users and 15,000 golden V users, who in total accounted for 80% social relationships. How much have those V accounts earned? How much have those “V” accounts earned? Rm 11.7 billion in total according to WB.
The “V” account strategy has been upgraded. WB has shifted the focus from an information stream to an interest stream and will thereby encourage more “V” accounts in each vertical. According to WB, in total 45 verticals have more than 1 billion monthly readerships and 18 verticals (as shown in the below chart) more than 10 billion monthly readerships.
18 WB categories that exceed 10 billion monthly readerships, Source: China Internet Development Statistics Report
In summary, I think this WB ecosystem works very effectively in a close-loop way: 1) WB supports and develops V accounts, the so-called Internet celebrity, 2) internet celebrity creates more influential content to enjoy attractive economics, 3) more original content attracts more active users especially the younger generation or users from those remote cities, 4) marketers enjoy cost-effective and efficient digital campaigns and shift more budget to WB, and 5) WB continues to innovate its platform technology and operations.
Investment Thesis#2: Live streaming furthers WB’s popularity among both consumers and marketers
WB began its operation as a Twitter model; however, over years, it has evolved into a comprehensive social media platform that combines Instagram, Twitter and YouTube. The following chart shows the format statistics of WB in 2016.
Source: China Internet Development Statistics Report
Video form and live streaming are gaining traction as you can see in the below charts. Short video views increased by 740% YoY in Q3 2016 vs. Q3 2015. Weibo live streaming increased by 124% QoQ in Q3 2016 vs. Q2 2016. It is also worth mentioning that 90% short video views are by users under 30 years old.
Source: China Internet Development Statistics Report
In Q3 2016, Weibo live streaming in total exceeded 23 million sessions, attracted average daily views of 260,000 and an audience of 5.38 million.
Source: China Internet Development Statistics Report
Video form represents superior content than other traditional forms to WB users, as video delivers information in tremendously higher density to users. Video is not new to us since we started watching TV in our living rooms. Thanks to Internet and Technology, live streaming is now becoming easily accessible through Internet and mobile.
Live streaming offers the capability of broadcasting video messages in real time to numerous audiences. According to the Pearson webpage, “Gifted or not, the fact remains that 65% of the population consists of visual learners.” Visual learners prefer to learn about products through visuals. For example, as a visual learner consumer, you are watching the live streaming of a virtual tour to a resort and you are provided an exclusive look at the pool, the property, the cuisine and whatever you demand in order to book a resort.
More people are watching videos on social platforms than ever before. According to Cisco’s (NASDAQ:CSCO) Visual Networking Index, video will account for 80% of all consumers’ Internet traffic by 2019. Mark Zuckerberg suggested that people watch live streams three times longer and comment 10 times more than on regular videos.
What is the implication of live streaming in social media? This is such a big positive for marketers. According to Huffingtonpost, “Marketers never thought that marketing would become so convenient and cost-effective. A decade ago, brands spent a huge amount on TV commercials, billboards, print media and many other advertising methods. Now, more than 50% of their focus has shifted to digital marketing.”
Similar to Facebook (NASDAQ:FB) Live, Snapchat, Instagram Live and Instagram Stories, WB is the dominant player that will shape the future of social media, and at the same time become the biggest beneficiary of digital marketing. According to Statista, China will be the world’s largest digital market by 2018.
China will be the world’s largest digital market by 2018. Source: Statista
In conclusion, I believe WB is the center of the future digital marketing because of its broad reach, fast distribution and multimedia form.
Investment Thesis#3: Efficacy of WB monetization
Building upon WB’s massive user base and the popularity of WB live steaming, WB is doing extremely well in monetization. Its monetization pace is the fastest among social media players in China.
WB’s monetization includes:
PC-based social display ads. Promoted feeds to SMEs. Self-service ad that allows customers to purchase our marketing services directly on Weibo. Weibo Showcase ad that allows a user to view an e-commerce merchandise from participating e-commerce sites, such as Taobao and Jumei, on Weibo, add the merchandise to one’s shopping cart and seamlessly navigate to the buy page of the participating e-commerce sites. Allow SMEs to purchase brand ads and key accounts to purchase promoted feeds, as well as introduced video ads.
Through various ad offerings, WB users enjoy attractive economics at very low costs.
Weibo user A who was born in 90s has 1 million fans. He teaches singing through live streaming and accumulated revenue which reached Rmb3.52 million within 6 months. Weibo user B is a Tmall seller, and his store GMV is around Rmb100 million as a result of 70% traffic from WB. Weibo user C has 1.79 million fans, and uses video plus live streaming to release merchandise information and thereafter sell through Weibo show window. Sales amount Rmb70 million.
In addition to ad revenue, WB also generates revenue from its creative value-added services. In Nov. 2016, WB announced “Weibo Q&A” product that allows fans to ask specific questions to other microbloggers (such as celebrity or other “V” accounts) and other WB users can circusee by paying Rmb1.
In Weibo Q&A, three parties are involved:
Fans A: Raise a specific question to the target Microblogger, and make a payment at the price set by the target. Microblogger: Answers the question within 72 hours and receives the payment. Other fans who circusee: share the answer with a payment of Rmb1. At the end: WB will share 10% of the total revenue from other fans; Fans A and the Microblogger each will earn the remaining 45%.
Below is a recent Weibo Q&A case, from which the total revenue was Rmb171,773 that was split among the three parties.
Weibo Q&A, Source: Internet
According to Maslow’s hierarchy of needs theory, when basic requirements of human beings are satisfied, higher level of needs such as self-esteem, love, self-actualization will become the focus. WB is the platform that will satisfy human’s multi-layer needs in a lot of creative ways. I believe WB is a long-term play of social media growth in China.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.